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LIVE MARKETS-STOXX 50 ready to break out its range after ZEW?

Wed, 16th Sep 2020 12:41

* European shares higher

* Eyes on Fed policy meeting

* Retailers lead gainers after Inditex results

* The Hut Group soars in London IPO debut
Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Joice Alves (joice.alves@thomsonreuters.com)
and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Danilo Masoni
(danilo.masoni@thomsonreuters.com) and Stefano Rebaudo (stefano.rebaudo@thomsonreuters.com) in
Milan.

STOXX 50 READY TO BREAK OUT ITS RANGE AFTER ZEW? (1140 GMT)

Yesterday's ZEW data showed that investor sentiment in Germany rose to 77.4 in September
signaling confidence in a recovery from a virus-induced recession.

This is a fact, but there could be more.

Saxo Bank, which looked at all samples since December 1991 where the ZEW was above 60 and
had a positive month-to-month reading, says this is "skewing the probability in favour of an
upside breakout for the STOXX 50 index" which has been trading in a tight range for six weeks.

A strong momentum in equity market "continues in the subsequent two months,” of the releases
of ZEW data, a Saxo Bank research note says.

"The median path ends up 3.3% after two months and the win ratio is 66%," it adds.

But more importantly "the interquartile range goes from -2.6% (25% percentile) to +7.2% (75%
percentile) indicating a distribution that is heavily skewed towards positive numbers,
increasing our conviction that the ZEW number yesterday will lead to positive European equities
over the coming months," it adds.

(Stefano Rebaudo)

*****

ITALIAN VOTE: LITTLE TO WORRY ABOUT (1034 GMT)

This time we shouldn't be worried too much about political uncertainty in Italy ahead of
next weekend's vote since, if everything goes as expected, a "yes" victory in a constitutional
referendum should support the current government.

Usually political instability in Italy triggers a rise in risk premia for Italian assets
with the closely watched yield spread between Italian and German government bonds widening.

Citi analysts do not expect this to happen in the near-term but they see instead a declining
trend for Italian rates as more likely.

Recent polls indicate a centre-right victory in regional elections that will be held along
with the referendum. That would not help the government of the prime minister Giuseppe Conte.

But they also forecast a "yes" result for the referendum aimed at reducing the number of
Parliament members, which will be major win for the 5-Star Movement (M5S) and reduce risks of a
near-term snap election, a Citi research note says.

If we are interested in rates we should turn our attention to next week's TLTRO and a
declining supply pressure in Q4, which will be supportive for Italian Btp.

(Stefano Rebaudo)

*****

CHALLENGING THE CONVENTIONAL WISDOM OF INVESTING IN EUROPE (0904 GMT)

The conventional wisdom is that Europe is primarily a value play but the composition of its
equity market is progressively changing, meaning that sooner or later investors may have to
rethink their views (and perhaps allocations) on the region.

Morgan Stanley is looking into this evolution and a while back it argued that the changing
sector mix of the European market with more tech and less banks will lead to higher profit
growth and less volatility.

After feedback from investors, strategists at the U.S. bank have returned to the issue,
pointing out a few facts about that may surprise you:

* At 14% Technology is the largest sector in the EuroSTOXX50 and likely to get even larger
at the
September rebalance

* After the rebalance, the index's Value exposure will be the lowest in a decade, Growth
exposure
is at a decade high

* The weighting in Value stocks in the UK is now close to a record high

* Healthcare and Consumer Staples are now the largest components of MSCI Europe, accounting
for
31% of the index together

* Semis has a larger market cap than Autos

* Europe is not overweight Banks (relative to MSCI ACWI)

* The largest stock in the European Retailing sector is Prosus

* Netherlands has a higher correlation to Nasdaq than any European sector (including Tech!)

* The Danish stock market is bigger than either Italy or Spain
(Danilo Masoni)
*****

OPENING SNAPSHOT: BUYING RETAILERS, EYES ON THE FED (0743 GMT)

European stocks are slightly higher, supported by the retail sector after stronger than
expected results from Zara owner Inditex.

Investors are reluctant to take big positions ahead of today's Federal Reserve policy
meeting. Their focus is on the central bank's economic view with some expectations it might take
further steps on the accommodative side.

Travel and leisure stocks are still under pressure after Lufthansa said it could
cut its fleet by 130 planes, 30 planes more than recently panned.

Europe's STOXX 600 index is up 0.2% led by Retailers, up 1.4%, while Travel and
Leisure stocks are the worst performers, down 0.4%

Inditex is up 5.5% after the company returned to quarterly profit though reported
sales down 31% on the year-ago period. Sweden’s Handelsbanken is up 3.3% as the
company will reduce its workforce and number of branches.

A whooping 30% rise for The Hut Group in its first day of trading on the London
Stock Exchange to seal the first major British initial public offering since the start of the
COVID-19 crisis.

(Stefano Rebaudo)

*****

ON THE RADAR: ASTRAZENECA, THE HUT GROUP, HANDELSBANKEN (0644 GMT)

European stocks are set to open slightly lower as investors wait for Federal Reserve policy
statement and economic view later today.

Vaccine developments are still on the frontline after the U.S. Food and Drug Administration
confirmed AstraZeneca's U.S. COVID-19 vaccine trial is on hold, as it conducts its
investigation after an illness in a participant in Britain.

Meanwhile in India, the local drugs regulator has given approval to Serum Institute of India
to resume clinical trials of the potential vaccine developed by AstraZeneca and Oxford
University, according to a Times of India report.

In London, e-commerce firm The Hut Group is preparing for its first day of trading
after batting away corporate governance concerns to seal the first major British initial public
offering since the start of the COVID-19 crisis.

Elsewhere, Handelsbanken will reduce its number of branches to around 200 from 380
by the end of 2021 and reduce its workforce, affecting around 1,000 employees in Sweden over the
next two years, as part of a review of the group's business operations.

Eyes also on Lufthansa which could cut its fleet by 130 planes in response to the
coronavirus crisis, 30 planes more than recently panned.

In results, fashion retailer Inditex, owner of Zara, returned to quarterly profit
in the three months from May to July but reported sales down 31% on the year-ago period.

There could be a positive readacross for Deutsche Post and Royal Mail
from stronger than expected results at U.S. delivery firm FedEx.

Finally Atlantia is ready to approve the listing of its motorway assets as early as
next week, challenging the solution favoured by the Rome government to solve a long-running
dispute with the infrastructure group.

(Stefano Rebaudo)

*****

MORNING CALL: WAITING FOR THE FED (0528 GMT)

European stock futures are hovering around yesterday levels with no clear direction as
investors await a Federal Reserve policy statement later today.

Yesterday’s upbeat U.S. and China macro data increased risk sentiment, but concerns about
the economy remain on fears of a second wave of virus-induced restrictions as well as a
political impasse over a new relief package in the U.S.

The Fed policy meeting which ends today is the first one since chairman Jerome Powell
announced a new stance on inflation and some analysts hope the U.S. central bank might take a
step forward on the accommodative side.

(Stefano Rebaudo)

*****

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